Korean Stock Market to Shed 'Undervalued' Stigma... Financial Services Commission to Promote Structural Improvement Policies

KOSPI PBR Below 1 at 0.95
Financial Services Commission Builds Virtuous Cycle Capital Market

On the 6th, the Financial Services Commission announced that it will pursue capital market policy tasks this year aimed at resolving the Korea Discount (undervaluation of the Korean stock market). The goal is to make the capital market a "platform of coexistence and opportunity."

As of the end of 2023, the price-to-book ratio (PBR) of the domestic stock market stands at 1.05 times. Looking only at the KOSPI, it is 0.95 times, below 1. This level is lower than that of developed countries (3.10 times) and emerging markets (1.61 times). Even compared to nearby Japan and Taiwan, the difference is significant, with PBRs of 1.42 times and 2.41 times respectively.

The Financial Services Commission plans to promote policy tasks focused on three main pillars this year: "establishing a fair and transparent market order," "enhancing accessibility to the capital market," and "spreading a culture that respects shareholder value" to improve the structure of our capital market.

The Financial Services Commission stated, "We plan to steadily pursue additional tasks such as the 'Corporate Value-Up Program' so that our capital market can become a 'ladder of opportunity' where companies and investors coexist."

The first direction is establishing a fair and transparent market order. The government has maintained a zero-tolerance and strict response stance toward unfair trading and has worked to establish a fair and transparent market order by introducing penalty systems for unfair trading.

This year, the government plans to improve the short-selling system as a policy task in cooperation with related agencies. This includes building a short-selling IT system and enhancing fairness in short-selling transaction conditions (repayment period and collateral ratio). Additionally, the government will diversify sanctions for unfair trading and strengthen regulations on similar investment advisory businesses.

The second direction is enhancing accessibility to the capital market for domestic and foreign investors. The government has promoted the international consistency of the capital market to attract global funds. It has improved systems to make it easier for foreign investors to invest in the domestic capital market by abolishing the foreign investor registration system (foreigner ID) and gradually mandating English disclosures. At the end of last year, the taxation threshold for capital gains tax on major shareholders' stock transfers was raised from 1 billion KRW to 5 billion KRW.

This year, additional tax improvement tasks such as abolishing the financial investment income tax and strengthening tax benefits for Individual Savings Accounts (ISA) will be pursued. The government plans to expand a stable demand base for the domestic capital market through diversification of trading systems such as launching Alternative Trading Systems (ATS), institutionalizing the unlisted stock market, strengthening investor relations (IR), and expanding financial education.

The third direction is spreading a culture that respects shareholder value. The government has promoted institutional improvements that protect general shareholders and enhance corporate value, such as introducing the right for dissenting shareholders to request stock purchase during physical division, mandating prior disclosure of insider trading, and improving systems related to treasury stocks and convertible bonds.

In the near future, the government plans to finalize the details of the 'Corporate Value-Up Program' in cooperation with related agencies such as the stock exchange and foster an environment where listed companies independently establish and implement corporate value enhancement plans. Additionally, through amendments to the Commercial Act, institutional improvements to protect minority shareholders' rights will be pursued, including clarifying directors' liability for damages, strengthening directors' responsibilities, and enhancing the substance of general meetings of shareholders by introducing electronic general meetings.

The Financial Services Commission stated, "Through joint efforts by the government, listed companies, and investors, we will build a 'virtuous cycle capital market' where our companies are properly evaluated and grow in the capital market, and investors share and reinvest the fruits of that growth."